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DEALTALK-Michael Klein helps Glencore, Xstrata finally tie knot
May 31, 2012 / 7:00 PM / 5 years ago

DEALTALK-Michael Klein helps Glencore, Xstrata finally tie knot

* Advisers on Glencore, Xstrata to receive almost $200 mln for advice

* Banks on the deal will receive up to $130 mln in fees

* Xstrata to pay up to $80 mln to its financial advisers, Glencore up to $50 mln

* Banker sees independent adviser Klein receiving $15-$20 mln

By Victoria Howley

LONDON, May 31 (Reuters) - The Glencore-Xstrata merger represents a $200 million-dollar pay-day for bankers and other advisers at a time when blockbuster deals are few and far between. None, though, have played a more striking role than former Citigroup grandee turned independent go-between Michael Klein.

It was Klein's ability to get the two principals, Glencore chief executive Ivan Glasenberg and Xstrata's Mick Davis, to agree on a valuation which helped clinch the deal, said several bankers who advised on the mammoth mining and trading marriage.

"Both Ivan and Mick are very strong characters. To get them to agree on terms this time is an achievement. We think Klein deserves every penny," said one banker involved, adding that Klein's personal fee on completion could be $15-$20 million.

Weighing in last year, he earned the confidence of both men and helped them overcome the rivalries between two of the business's toughest dealmakers that had got in the way of previous efforts to merge the companies.

Commodities trader Glencore has had a 34 percent stake in Xstrata that dates back to the miner's early days as a Swiss infrastructure company.

Financial advisers working on the deal are set to share a total fee pot of $130 million, with a further $70 million slated for legal, accounting, public relations and other counsel, according to merger documents released on Thursday.

Bankers have long said that a full marriage between the two firms was inevitable. But Glencore, opaque to outsiders before its $11-billion initial public offering a year ago, had to build up a track record with analysts and a clear market valuation before Davis at Xstrata would revive merger negotiations in earnest, after years of on-again-off-again discussions.

The talks became serious when Klein got involved around the third quarter of last year, people familiar with the matter said.

According to a second banker, Klein's pivotal role was as an honest broker between the camps.


Glasenberg and Davis already had strong ideas about how a deal should work and had prepared much of the ground themselves, the banker said. But what Klein brought in was his ability to play the detached observer, able to filter down to the essence each man's ideas and present them to the other.

"He was chosen for this role because he does not know Mick or Ivan well enough for the other side to cry 'bias'," the second banker said.

The banker said that Klein was especially helpful explaining the merits of Glencore's ideas to the Xstrata board. On occasion, Klein would also tell Glencore if it was pushing the envelope too far, the banker said, declining to elaborate on specific circumstances.

"I think Glencore will pay him a decent fee," the banker said. "They have a reputation for not paying very much for M&A advice, largely because they cook their own deals.

"But they will pay Klein, because he delivered value."

Klein, described by someone who knows him as either loved or hated by clients and at times "hyper-active", was a 23-year Citigroup veteran, who arranged Abu Dhabi Investment Authority's $7.5-billion capital injection in the firm in 2007.

He left the following year when he missed out on the top job of running the bank's combined investment bank and asset management business - the institutional clients group.

A few months after his departure, Klein was instrumental in Barclay's acquisition of Lehman Brothers, for which he earned a fee estimated by bankers involved at some $10 million.


Klein's slice of the fees in the Glencore-Xstrata deal will mean less compensation for the well-known individuals and the banking teams advising the two groups.

Citigroup, Morgan Stanley, Credit Suisse and BNP Paribas have worked for Glencore and Deutsche Bank , JP Morgan, Goldman Sachs, Nomura and Barclays for Xstrata.

According to banking sources, Credit Suisse, BNP Paribas and Barclays will receive less than the other banks because they were brought into the deal at a much later stage.

These banks were not credited as advisers when documents for the deal came out in February, but they will have been eager for a role because the combined company is expected to continue Glencore's opportunistic and lucrative acquisition strategy; even while working through the Xstrata deal, Glencore snapped up Canada's largest grain handler, Viterra, in a $6-billion, three-way acquisition.

Xstrata's decision to grant Barclays a mandate is said by bankers familiar with the deal to have come after a last-minute intervention from the bank's chief executive, Bob Diamond.

London's "mining king" Ian Hannam, the veteran rainmaker who resigned from JP Morgan last month to fight a 450,000-pound fine imposed by British regulators for passing on inside information, was also still involved in the transaction.

Davis has come to the defence of the former special forces soldier, who helped Xstrata to market a decade ago.

Teams at Citigroup and Morgan Stanley, including veteran advisers David Wormsley and Simon Robey, will get less than Xstrata's main advisers, bankers said, due to Glencore's traditionally more aggressive stance toward its bankers.

"Xstrata, a public company, has long-standing and deeper relationships with its advisers, so it has wanted to reward them appropriately," another banker said.

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